Central Bank Governor Orphanides Replaced by Panicos Demetriades

Update: Central Bank Athanasios Orphanides will not be re-appointed and has been replaced by Panicos Demetriades, according to a government announcement.

In comments to the press, Orphanides said his conscience is clear and that he had a final meeting in his capacity as governor with President Demetris Christofias to discuss the current state of the banking sector.

Orphanides' replacement is not widely supported by opposition parties after a number of their leaders spoke out in support of Central Bank Governor Athanasios Orphanides' re-appointment, saying that if someone new takes his place at this critical juncture, it could affect the economy negatively.

Several of Cyprus' banks were heavily hit by their exposure to Greek bonds and posted 2011 losses in the billions of euros, and if Orphanides is not re-appointed, their chances of getting a bailout is reduced, said DISY deputy head Averoff Neophytou. Orphanides is a respected and known European Central Bank official and is instrumental in guiding the island's banking and financial sector through rocky and stormy economic times, according to statements from other political figures.

But fiscal conservative Orphanides has crossed swords with communist President Demetris Christofias in the past, with both men having widely diverging economic policies. Orphanides has struggled to warn of the dangers the economy faces but his warnings were brushed off by former Finance Minister Charilaos Stavrakis and Christofias, who dismissed them as fearmongering. The delay in responding to the repeated warnings from conservative economists contributed to a continuing increase in the government's spending and deficit through 2010 and 2011, and a corresponding drop-off in trust from Cyprus' traditional lenders in the financial markets.

Orphanides' resistance to selling off some of the Central Bank's gold reserves to contribute to government spending added more tension to relations between the Central Bank and the communist-led government.

In essence, Orphanides is in the middle of a local political drama made up of the communists' disdain and active battle against private business and banking, and the worst recession experienced by the economy since 1974.

His term as Central Bank governor ends on May 3rd, and one would be forgiven for asking - not whether President Christofias wants him as governor - but whether Orphanides wanted to continue as governor.

Rumours about the president's favourite candidate being Professor Panicos Demetriades were officially confirmed on April 28th. Given the president's propensity for reshuffling his cabinet and replacing his critics with obedient loyalists, most observers believed that Orphanides would be replaced, and that his opposition party supporters will be disappointed.

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